One of the major topics in the e-News for Tax Professionals this morning was the reporting of miscellaneous income. The report was technical, however, I hope that I have made it easier to understand.
Most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don't realize that they must also report most other income, such as:
** cash earned from side jobs
** barter exchanges of goods or services
** awards, prizes, contest winnings and
** gambling proceeds
What is Taxable?
Taxpayers must report all income from any source and any country unless the Tax Code says differently.
To help make it crystal clear, generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the tax code provides an exemption. For details of the U.S. Tax Code on this subject, visit: www irs gov
Self-Employment Income
All income earned through the taxpayer's business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.
Use Form 1040, Schedule C, Profit or Loss from Business, to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year.
Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who designs web sites in his spare time should report all monies earned as self-employment income even if you earned less then $600.
Bartering
Bartering is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties.
An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. Income from bartering is taxable in the year in which the taxpayer received the goods or services.
Gambling Winnings
Gambling winnings are fully taxable and must be reported on Form 1040.
Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.
Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.
Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.
Prizes and Awards
Subject to certain exceptions, the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income.
Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.
For example, both a $500 cash prize and the fair market value of a vacation won in a raffle test must be reported as other income on Form 1040, Line 21.
Most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don't realize that they must also report most other income, such as:
** cash earned from side jobs
** barter exchanges of goods or services
** awards, prizes, contest winnings and
** gambling proceeds
What is Taxable?
Taxpayers must report all income from any source and any country unless the Tax Code says differently.
To help make it crystal clear, generally, the IRS considers all income received in the form of money, property or services to be taxable income unless the tax code provides an exemption. For details of the U.S. Tax Code on this subject, visit: www irs gov
Self-Employment Income
All income earned through the taxpayer's business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.
Use Form 1040, Schedule C, Profit or Loss from Business, to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year.
Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.
Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who designs web sites in his spare time should report all monies earned as self-employment income even if you earned less then $600.
Bartering
Bartering is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties.
An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. Income from bartering is taxable in the year in which the taxpayer received the goods or services.
Gambling Winnings
Gambling winnings are fully taxable and must be reported on Form 1040.
Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.
Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.
Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.
Prizes and Awards
Subject to certain exceptions, the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income.
Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.
For example, both a $500 cash prize and the fair market value of a vacation won in a raffle test must be reported as other income on Form 1040, Line 21.
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